Once they learned free agent Peyton Manning wasn’t interested, the Jets finalized a contract extension with their own quarterback. The team agreed in principle with Sanchez on a three-year, $40.5 million extension on top of the two years he had remaining on his old deal, locking him up through 2016.

The terms of his new contract are five years, $58.25 million with $20.5 million guaranteed over the first two years, according to a source. There are an additional $10 million in escalators that could bring the total deal to $68.25 million. Sanchez becomes the sixth- or seventh-highest-paid quarterback in the NFL, depending on what scale you use.

“We feel really good about Mark as our starter,” Jets general manager Mike Tannenbaum said on a conference call late Friday night. “Like all players there are definitely areas that can be improved it. But with a three-year body of work we felt good about the direction of Mark and Rex [Ryan] as the head coach/quarterback combination.”

The Jets approached Sanchez’s representatives a few weeks after the season ended about working on an extension. Talks accelerated at the NFL Scouting Combine last month in Indianapolis.

But the Jets kept the door to Manning open all along. The team called Manning’s representatives this week while still negotiating with Sanchez. A team source said the Jets wanted to see Manning’s interest level in the team but things never got serious between the two sides. Once Manning made it clear the Jets were not one of his finalists, they moved to secure Sanchez.

The sides agreed to the new deal around 7 p.m. last night. A source said the new contract significantly reduces Sanchez’s salary cap figure for this year, but Tannenbaum said that was not a motivating factor to get the deal done.

Tannenbaum said the team had a duty to consider Manning because of his credentials.

“When Peyton Manning, a first-ballot Hall of Famer became available, just like I do every day and I’m committed to it, we looked into that possibility as someone to add to our team,” he said. “We looked at it, we had discussions internally, we monitored the situation. But as events continued to unfold we kept pushing the extension with Mark.”

Sanchez said he was not bothered by the team’s flirtation with Manning.

“I completely understand it now, especially after being in the NFL for three years now, that this is a business,” Sanchez said. “The team has its obligation to consider all its options. I’m excited the Jets believed in me and that I was the guy they wanted to move forward with in the future.”

Sanchez, who was drafted fifth overall in 2009 by the Jets, said he was thrilled to know he would be with the team for a long time.

“The best part about it is they chose to stick with me,” Sanchez said. “I’m going to be the starting quarterback for the next three years here. That’s exciting. It gives the team just a reminder that I’m the leader of this team.”

The move is surprising considering Sanchez struggled at times last year. After leading the Jets to the AFC title game in his first two years, Sanchez threw 26 touchdowns in 2011 but also had 18 interceptions last season.

Still, the Jets say they believe in Sanchez, despite their pursuit of Manning.

“We’re excited and encouraged about the trajectory of Mark’s career,” Tannenbaum said.

*

Last night’s conference call was Sanchez’s first chance to address many of the reports since the end of the season about discord in the Jets locker room.

He said he has visited with wide receiver Santonio Holmes, who feuded with Sanchez at the end of the year.

“We’ve been in contact really this whole offseason,” he said. “I think a bigger deal was made out of that than needed to be. That’s OK. With neither of us commenting on it, I think it got bigger. We’ve kind of laughed that off at this point now weeks ago.”

Sanchez said he will be motivated by the criticism he has received since the season ended.

“If anything, that fuels me,” he said. “It gets me excited about this next year. I think if anything this past year I learned more than my first two years combined about how to handle adversity.”